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foreclosure prevention guide


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									William C. Thompson, Jr.
New York City Comptroller

                    2nd edition
             Foreclosure Prevention Guide

Dear Friend,
    Since I established a Foreclosure Prevention Helpline in 2007,
my office has assisted thousands of individuals and families in taking
the first step toward keeping their homes. As the number of
foreclosures in New York City continues to rise, we are
strengthening our efforts to help even more New Yorkers. We have
updated this guide with information that can help you, your family,
your friends, or your neighbors avoid foreclosure.

    Many of you may ask, what is foreclosure? Foreclosure is a
legal process through which a lender seeks to take ownership of a
borrower’s home because the borrower has failed to pay his or her
mortgage loan as agreed. The foreclosure process typically begins
when a borrower is more than 90 days late on a mortgage payment
and the lender files a notice of default.

    Although there is no simple or single solution, it is important
that at-risk borrowers take immediate action. Foreclosures may be
avoided if individuals and communities are well-informed about
available resources. According to some studies, half of home
foreclosures occur without borrowers ever talking to their
mortgage servicer or to a non-profit mortgage counselor.

    If you or someone you know is facing the possibility of
foreclosure, we are here to help. Our Foreclosure Prevention
Helpline has trained staff who will assist you with contacting your
servicer and guide you to other non-profit resources. Helpline staff
can be reached at (212) 669-4600.

    Unfortunately, for many New Yorkers, the dream of home
ownership has turned into the nightmare of foreclosure. It is my
hope, however, that this newly revised and improved guide will
help provide individuals with the options and resources necessary
to prevent foreclosure.

    By serving the needs of each community in our city, we will
secure a better quality of life for all New Yorkers.
                        Very truly yours,

                        William C. Thompson, Jr.
                        New York City Comptroller
            Fo reclosure Prevention Guide

How to minimize the risk of foreclosure before you
purchase or refinance:
     Seek counseling services offered by non-profit
     organizations before you purchase or refinance
     your home. You should meet with certified experts to learn
     how to improve your credit rating, avoid predatory lenders,
     review financial budgets, and understand all the steps
     necessary for buying or refinancing a home.

     Avoid prepayment penalties and balloon payments.
     A prepayment penalty may add significant additional costs
     if you decide to refinance your loan. Individuals who finance
     or refinance their mortgages with loans containing
     prepayment penalties or balloon payments are at greater
     risk of foreclosure. Borrowers should avoid these costly and
     risky loans.

     Stay on top of home repairs and maintenance. Know
     which improvements increase the value of your home, and
     have only reputable contractors perform any improvements
     or repairs. Dishonest contractors often pressure
     homeowners into loan products that may lead to foreclosure.

Missed a mortgage payment . . . what’s next?
     Contact your lender as soon as you realize you are
     having difficulty. There is a saying: “the sooner, the
     better.” This is a good standard for deciding when you should
     notify your lender that a payment will be late. The further
     behind you are on your payments, the fewer options you
     have available. Follow up with a letter to your lender
     documenting your conversation with your lender’s

     Open and respond to all mail from your lender. Your
     lender will likely contact you as soon as your loan is in default.
     It is important that you respond to all mail and phone calls
     from your lender. The first notices you receive will contain
     valuable information about your options to prevent
     foreclosure. Additional letters may include important
     notices of pending legal action. Failure to respond quickly
     may result in further foreclosure actions and additional
     costs.                                                               1
                 Foreclosure Prevention Guide

    Beware of uninvited solicitations from private
        Be skeptical of unsolicited offers or advertisements from private
    parties and unfamiliar companies offering to assist homeowners
    with delinquent mortgages or mortgage foreclosures. Some of these
    predatory lending traps include: high-risk second mortgages,
    unsolicited “loan approvals,” refinancing to access equity and
    equity skimming. In many instances, these offers require the
    payment of inappropriate fees or involve an offer to purchase your
    property with the false promise that it will be resold to you at some
    time in the future.

       Remember, “if it sounds too good to be true, it probably is.” If
    you sign the deed to your home over to another party, there is no
    guarantee that you will be able to get it back.

    Are there options if I cannot make payments?
        If you are having difficulty paying your mortgage due to short-
    term financial hardships such as illness, family emergencies, or
    temporary loss of income, you may be permitted to delay your
    mortgage payments for a short time. But you must first contact
    your mortgage lender.

       Similarly, if you have funds to make at least a partial mortgage
    payment, your lender may allow you to add a payment in the future.
    However, be aware that you should not simply cease making
    payments or make only partial payments without first discussing
    your options directly with the mortgage lender.

        Ask your lender about alternatives to foreclosure, including
    repayment plans, forbearance agreements, reinstatement
    arrangements, or workouts.

           Repayment Plan: Repayment plans are used when a
           person has missed a few payments, can afford to make regular
           payments going forward, and expects to be able to “catch
           up” on the missed payments in the near future. Generally, a
           repayment plan does not extend beyond 12 months. Since
           monthly payments during the term of the plan are higher
           than a regular monthly payment, this method may not be
       Fo reclosure Prevention Guide

suitable for people experiencing an ongoing interruption to
their income.

Forbearance Agreement: You are allowed to delay
payments for a fixed period. When the forbearance period
ends, the homeowner is required to resume paying the
mortgage, and payments that were skipped will need to be
repaid according to the terms of the agreement. This short-
term agreement does not reduce the total amount owed or
the interest rate charged. As a result, this plan is unlikely to
help a homeowner whose mortgage payment has become

Reinstatement Arrangement: The process of correcting
(or “curing”) a default in your mortgage and returning to a
condition where your lender will treat you as if you had
never fallen behind.

Workout: A process through which you and your lender
discuss ways of correcting a default on your loan. If you
need time to correct the default, you and your lender may
be able to reach a formal agreement about how you will bring
your loan back into good standing.

Workout options are tailored to your individual situation,
but you must qualify for a workout plan. Lenders must
evaluate each borrower’s circumstances on a case-by-case
basis and go through an approval process to arrange
workout plans. This can take time, so it’s important that you
act immediately and promptly provide any information
requested by your lender to avoid further foreclosure action.
Be prepared to provide detailed financial information to
assist your lender in approving you for a potential workout
option. Be honest about your circumstances and personal
finances—it will lead to the workout option that best fits your
situation. Keep your promises on any workout arrangement.

                 Foreclosure Prevention Guide

    Long-term inability to make mortgage payments
        If you have missed mortgage payments because you have an
    Adjustable Rate Mortgage (ARM) that has increased and is now not
    affordable, contact your mortgage servicer to explore other options
    to foreclosure. You may want to consider modifying your mortgage
    agreement and converting your mortgage to a fixed-rate product.
    This way you will know what your mortgage payment will be for the
    duration of the loan. It is important for you to make sure that the
    option you choose is affordable for the duration of the loan.
          Modification Agreement: Making a permanent change
          to the loan agreement. A modification generally reduces a
          borrower’s monthly payment by reducing the interest rate
          on the loan and lengthening the repayment period. Before
          agreeing to a loan modification, the lender will want to verify
          that the new payment will be financially feasible for the
          borrower over the long term, so that current problems are
          not simply pushed into the future.
          If you find that you cannot afford the terms offered by a
          modification agreement, you may want to explore the
          following options with your servicer:
          Pre-foreclosure Sale: Sale of a house in anticipation of
          foreclosure or repossession, usually with the lender’s
          consent. A pre-foreclosure sale is particularly useful when
          the homeowner has significant equity in his or her home and
          wants to reduce the amount of the equity that will be
          consumed by the lender’s collection and foreclosure costs.
          Short Sale: An arrangement through which your lender
          agrees to let you sell your home (usually with assistance
          from a real estate professional) at a price that generates less
          money than is needed to fully repay the amount you owe.
          Even though the money generated by the sale is less than
          what you owe, the lender agrees to accept the sale proceeds
          as full satisfaction of the debt. As a condition of a short sale,
          lenders generally agree not to seek a “deficiency judgment”
          for any loss they may experience. Homeowners entering a
          short sale arrangement should be aware that the amount
          forgiven by your lender (i.e., the difference between the
          amount you owed the lender and the net proceeds generated
          by the sale of your home) generally will be reported to the

              Fo reclosure Prevention Guide

       Internal Revenue Service (IRS) as taxable income for the
       homeowner. To determine whether you qualify for an
       exemption from taxes on this amount, please consult a
       lawyer or an income tax professional.

       Congress recently passed a temporary federal law (Public
       Law 110-142) that allows distressed homeowners to avoid
       income taxes on mortgage debt forgiven by their lender.
       For a summary of this legislation, please visit the following
       website to determine if you qualify for the exemption:

Foreclosure Proceedings
    If you are in default, before a lender can take title to your home,
the lender first must start an action in court, often referred to as
foreclosure proceedings. A lender cannot take title to your home
unless that court issues a written order permitting the lender to do
so. You have a right to defend against that action in court. For that
reason, if you ever receive a foreclosure notice or other court
papers, you need to contact a lawyer immediately.

Foreclosure Prevention Counseling
   If you believe your home may be in jeopardy of foreclosure,
you should immediately contact the Comptroller’s Foreclosure
Prevention Helpline: (212) 669-4600. Our staff will research
your case and make the appropriate referrals to your mortgage
servicer and non-profit organizations certified by the U.S.
Department of Housing and Urban Development (HUD).

    The Comptroller’s Office can help you:

       Review your situation and determine what options are
       available to you.

       Discuss the various workout arrangements lenders have

       Obtain information regarding services and programs in
       your area that provide financial, legal, or other assistance.
                Foreclosure Prevention Guide

       When you contact the Foreclosure Prevention Helpline or any
    HUD-certified counseling agency, you should have the following
    documents and information:

    Information about the home being foreclosed:

         Year purchased
         Original purchase price
         Estimated current value
         Whether it is owner-occupied
         Whether it is a multi-family home
         Condition of the property

       Mortgage information:

         Number of mortgages
         Purpose of mortgage(s) (purchase, refinance, home equity,
         debt consolidation, etc.)
         Original mortgage amount(s)
         Loan account number(s)
         Year the mortgage was obtained
         Name of the lender(s) and any servicer(s)
         Contact information for the current lenders and servicers,
         including mailing address, telephone and fax numbers, and
         contact person
         Type of mortgage (fixed-rate, adjustable rate, length in
         years, etc.)
         Interest rate
         Total monthly payment
         Number of months behind
         Total arrears (including fees and costs)
         Current principal balance
         Any correspondence you have received from the lender

           Fo reclosure Prevention Guide

Important Mortgage-related Definitions:
    Adjustable Rate Mortgage (ARM): A loan with an interest
    rate that changes at regular intervals during the life of the
    loan. The interest rate is calculated by adding a pre-
    determined number of percentage points (“the margin”) to a
    specific market rate of interest (“the index”). For example, a
    loan agreement for an ARM might state that your interest
    rate will change (“reset”) every six months, and the new rate
    will be calculated by adding 3 percentage points to the London
    Inter-Bank Offered Rate (LIBOR).

    Amortization: The process of reducing the principal
    balance of your loan by making regular monthly or bi-weekly
    payments. Each payment is applied to principal and to
    interest. Most loans are so-called “fully amortizing” loans,
    which means that your monthly payment is calculated to
    ensure that, at the end of the loan, you have fully repaid
    (“amortized”) the amount you borrowed, including applicable
    interest. If a loan is not set to fully amortize, you will still owe
    money (a “balloon payment”) at the end of the loan. Beware
    of “negative amortization” loans.

    Balloon Payment: A large, lump-sum payment that is due
    at the end of certain types of loans. The amount of a balloon
    payment is significantly larger than a regular monthly
    payment. A balloon payment occurs when your monthly
    payments are calculated using a smaller amount of money
    than you actually borrowed or a repayment period that is
    significantly longer than the life of your loan. Loans with
    balloon payments are often used by lenders to keep monthly
    payments low; however, these loans can be dangerous
    because paying only your monthly payment leaves you with
    a large amount still owed at the end of the loan.

    Fixed-Rate Mortgage: This type of mortgage loan has a
    single interest rate for the entire length of the mortgage. Since
    the interest rate does not change, the rate is said to be “fixed.”
    Please note: a fixed-rate loan may have a default rate that is
    triggered if the borrower fails to repay the loan as agreed.
    The default rate is essentially a penalty rate that is charged
    for as long as the default condition lasts.

          Foreclosure Prevention Guide

    Prepayment: Repaying some, or all, of a loan’s principal
    balance before it is due.

    Prepayment Penalty: For some loans, a fee charged by a
    lender if you make a prepayment. Prepayment penalties are
    included in mortgage agreements to discourage borrowers
    from paying off their loans sooner than expected. Originally,
    this fee was intended to compensate lenders when a loan
    was repaid before they had a chance to make enough money
    to cover the upfront costs of making the loan. In recent
    years, prepayment penalties were widely abused by
    predatory lenders to prevent borrowers from refinancing
    their high-cost loans. For lenders that are regulated by the
    New York State Banking Department, there are strict
    limitations on prepayment penalties, especially with respect
    to high-cost loans.

    Subprime Loan: This is a loan that is more expensive than
    comparable prime loans. Subprime lending is generally
    defined as less than ‘A’ (i.e., prime) lending. This type of
    lending is designed to help borrowers with no credit history
    or past credit problems obtain a loan. The increased expense
    of the loan is intended to compensate lenders for the
    additional risk they accept when making loans to borrowers
    with weak, troubled, or non-existent credit histories.
    Whensubprime loans contain requirements that trap
    borrowers into high payments, repeated refinancing, or
    deceptive repayment terms, the loan becomes a “predatory”
    loan. Not all subprime loans are predatory loans; however,
    there is a greater risk of receiving a predatory loan if you are
    obtaining financing in the subprime market.

           Fo reclosure Prevention Guide

Foreclosure-related Definitions:

     Default: Failing to meet the requirements of a loan or
     mortgage agreement. Most defaults occur when a borrower
     fails to make required payments; however, other common
     types of default include: failing to maintain homeowners’
     insurance; neglecting to maintain the property in acceptable
     condition; failing to pay property taxes; and failing to pay
     condominium or homeowners’ association fees.

     Default Rate: The interest rate that a creditor will charge
     after the borrower has defaulted on the loan. If there is a
     default rate, it should be identified in the loan agreement.
     The default rate on a loan typically is significantly higher
     than the regular interest rate.

     Deficiency: A deficiency arises when a foreclosure sale
     does not generate enough money to repay the full amount
     that was owed to the lender. In some states, a lender can sue
     to obtain a “deficiency judgment” that, if granted, requires
     the former homeowner to pay the amount of the deficiency.

     Redemption: Saving (“redeeming”) your house from
     foreclosure by repaying your lender the entire amount owed,
     including principal, interest, late fees, and any associated

   Please call, fax, e-mail, write, or visit the Comptroller’s Community
   Action Center (CAC). This unit has resolved thousands of problems
   confronting New Yorkers. We can help you, too.

            Foreclosure Prevention Helpline:
                    (212) 669-4600
                Community Action Center:
                    (212) 669-3916
                           TTY Users:
                         (212) 669-3450
                         (212) 669-2707
                 1 Centre Street, Room 835
                    New York, NY 10007
                        Call or visit CAC:
                     9:00 a.m.–5:00 p.m.
This guide provides basic information about steps to avoid foreclosure.
The guide is not intended to provide legal, financial or regulatory advice
and should not be relied upon for that purpose. Please consult a lawyer or
a non-profit counseling agency for specific guidance.


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